Economic Impacts of Commercial Real Estate, 2024 U.S. Edition (2024)

FAQs

Economic Impacts of Commercial Real Estate, 2024 U.S. Edition? ›

* Contributed $2.5 trillion to U.S. gross domestic product (GDP). * Generated $881.4 billion in personal earnings. * Supported a total of 15 million jobs.

The combined economic contributions of new commercial building development and the operations of existing commercial buildings in the United States in 2022 resulted in direct expenditures of $826.9 billion and the following impacts on the U.S. economy: Contributed $2.3 trillion to U.S. gross domestic product (GDP).

According to the Commercial Real Estate Development Association (NAIOP)'s 2022 Economic Impacts of Commercial Real Estate report, the commercial real estate contribution to GDP in 2021 in the US was approximately 1.2 trillion dollars—or about 5% of the total US GDP of 22.99 trillion dollars.

Real estate affects the economy because it makes up a large portion of individual and business wealth across economic sectors. When real estate prices rise, wealth increases, so individuals and businesses are more likely to borrow and spend.

Construction starts remain muted, and there are concerns that the volume of new multifamily units delivered to the market in 2024 could lag behind demand. If this trend continues, it has the potential to keep occupancy high, and as the supply of new units remains constrained, rent growth could pick up in 2024.

Retail demand surged in the last 18 months, leading to nearly 35 million square feet of new retail space across various shopping center types in 2023. Forecasts for 2024 anticipate stable performance, especially in neighborhood centers, with vacancy rates at a ten-year low of 4.1 percent in September.

The estimated total dollar value of commercial real estate was $20.7 trillion as of 2021:Q2.

Share: Housing's combined contribution to GDP generally averages 15-18%, and occurs in two basic ways: Residential investment (averaging roughly 3-5% of GDP), which includes construction of new single-family and multifamily structures, residential remodeling, production of manufactured homes, and brokers' fees.

Commercial properties have approximately $5.82 trillion in outstanding debt, of which $2.8 trillion is scheduled to mature in the next five years, according to Trepp data.

Real estate significantly influences the economy, owing to its substantial share in the wealth of individuals and businesses across various sectors. A rise in real estate prices often leads to an increase in wealth, prompting individuals and businesses to engage more in borrowing and spending activities.

What happens to real estate during economic collapse? ›

What happens to house prices in a recession? While the cost of financing a home increases when interest rates are on the rise, home prices themselves may actually decline. “Usually, during a recession or periods of higher interest rates, demand slows and values of homes come down,” says Miller.

Real Estate's Contribution to Economic Growth

Investment in real estate not only bolsters construction and development but also ignites ancillary sectors, creating a ripple effect that fuels economic expansion.

A Recession's Effects on Real Estate in General

The biggest impact of an economic recession is that there is a decreased demand for real estate due to declined consumer and business spending. As a result, both residential and commercial real estate can feel the effects of the recession, as property values may fall.

Recessions do have an impact on commercial real estate, but not all property types are affected in the same way. Some properties will be at a higher risk of foreclosure, while others can actually yield higher profit margins for investors.

Commercial real estate is widely considered to be a good long-term hedge against inflation, as owners may benefit from stable income and the ability to increase rent. Inflation in the U.S. has risen to levels we've not seen since the 1980s.

Summary of How Inflation Affects Real Estate Investments

Because commercial property owners can pass on expense increases through higher rent in times of higher inflation, property values tend to keep up, preventing an erosion of purchasing power over the longer term.